I am thinking on developing a product which involves development of some hardware and device driver on top of which we will write our application. That hardware company is asking for profit sharing for OEM licencing and that too like 50% profit share per sale made. It doesn't make sense that OEM should be linked with my profits.
How does OEM licencing works and what is typical sharing model for it. Is it fixed price per unit or is it linked with selling price of each unit?
All the OEM I have seen has been a fixed price per unit, based on volumes. I've even seen fixed price per unit, with a declining price over time (with the expectation that you will improve your manufacturing efficiencies over time).
I don't have a huge amount of experience on OEM to know how normal this alternate share of the profits proposal is. I haven't seen it.
The OEM's I have been involved with have been based on a percentage of sale price or a floor percentage of MSRP (was set to 18% in this case) whichever is higher - this way the company is guaranteed a minimum value even if the other party decides to discount excessively.
There were a few instances where the OEM was happy to support bid pricing and take less than their floor but this was only for very large, strategic deals.